Being debt ridden is not a pleasant situation to be in. There are various methods being taught by different financial experts and each one is effective -- but only if applied correctly and practiced diligently.
One of the most prominent ways to pay off debts is called the Snowball Method. Simply put, it instructs the debtor to concentrate extra funds on the debts with the lowest balance while maintaining the minimum amount for the rest of the high balance debts. The other method that is often pitted against it by critics is the Avalanche Method that chooses to prioritize the high interest rates first.
The main advantage of using the snowball debt-paying method is its ability to boost the morale of the debtor while in the midst of the debt relief process. Since they are concentrating on the debts with the least amount of balance, the chances of closing one debt is faster. It is believed that when a debtor tastes the success of paying off one debt completely, they get motivated to pay the other accounts that they owe. If you notice, it is more of a psychological benefit that makes this method popular with debtors. As one debt is finished, the proceeds of the finished debt goes to the next lowest balance so it gets paid off faster.
Logical thinking people may frown on this method as they are more favorable to the avalanche method. The idea is to keep the total money being sent to interest rates a lot lower - thus getting more savings in the long run. However, concentrating on the high interest rate debts can possibly take longer to pay for - especially if it still has a high balance to it.
Financial expert, Dave Ramsey, argues that although mathematically speaking, the snowball method may end up costing more. However, one of the factors that makes a debt payment endeavour successful is the behavior of the debtor towards it. If they get the encouragement early (since paying the lowest balance will guarantee that), they get the motivation to move on to the next debt. Ramsey calls this the "quick wins". As a debtor sees the number of the debts dwindling, it can help boost their morale.
This method is mostly used for revolving debts. You begin by listing all the debts you owe based on their outstanding balance - from lowest to highest. If you have two debts that has the same amount, move the one with the higher interest rate above the other.
Indicate the minimum payments required for each debt. Distribute your debt payment budget to pay for all the minimum of all the debts. Anything extra should be added to the debt on top of the list. Continue this payment scheme until you have paid completely for the topmost debt.
When you have closed one debt, move up the second debt and send all the extra funds to pay for it while continually paying the minimum for the others. This process is repeated until all the debts are completely paid for. You will notice that the extra money you pay for the priority debts become bigger and thus more encouraging since a huge chunk of the debt is removed each time the debtor pays.
These successes provide evident success as the bills start dwindling and debtors see the results immediately.
It has to be noted that the snowball method is only possible for people with enough income to cover for all the minimum of the debts. If your finances cannot meet this requirement, you may need to opt for another debt relief option to help you settle your debts.
Click Here to read common questions and answers about debt relief. Get debt assistance here: http://www.nationaldebtrelief.com/debt-assistance/ and see how National Debt Relief can help with your debt problems.
www.nationaldebtrelief.com
ReplyDelete